Insurers have to maintain a safety net of money to protect themselves from unforeseen market conditions, but a new study from Consumers Union says that some Blue Cross Blue Shield insurers took it too far, preferring to focus exclusively on stockpiling cash at the expense of customers. Two of the worst cases have stockpiles 5 to 7 times higher than state solvency requirements, yet continue to hike premiums each year instead of using the, uh, surplus surplus to offset customer costs.
Based on its findings, Consumers Union is recommending state insurance commissioners examine these surpluses, develop appropriate ranges for minimum and maximum surplus, and disapprove or reduce rate increases, particularly on individual market plans, when the company has more surplus than is necessary for solvency protection.
The report notes a few states have started to reject rate increases on the grounds that previously accumulated surpluses were sufficient to absorb any potential underwriting losses and that it is appropriate to balance profit expectations against the financial hardship the increase would impose on policyholders. Consumers Union urges all states to analyze surplus as part of their review process for rate increases.